Use the IS-LM-UIP model for an open economy with flexible exchange rates as a useful tool in discussion of domestic macroeconomic effects of high electricity prices, including petrol and diesel prices
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- 33 As a country begins to liberalize its capital account, what would you expect to happen to the difference between the interest rates for similar assets in this country and another country with open capital markets? A get smaller B stay the same (c) exponential divergence D It depends on the existing exchange rate. E) get larger 34 Which statement is NOT true regarding emerging markets? A) Emerging market financial institutions have generally proven to be weaker than those in industrialized countries B) Emerging market financial institutions contributed to the financial crisis of 1997-1999 C Countries with emerging markets have been unable to liberalize their financial systems to allow private trade with foreigners D Countries with emerging markets include Brazil, Mexico, and Thailand. (E) Emerging markets are the capital markets of poorer, developing countries that have liberalized their financial system to allow private asset trade with foreigners 35 Which of the following is TRUE…change rate $1.75 1.50 1.25 1.00 200 500 S d 700 900 950 1,000 S D₂ Quantity of euros traded (millions per day) 17) Refer to Figure 30-8. The equilibrium exchange rate is at A $1.25/euro. Suppose the European Central Bank pegs its currency at $1.00/euro. At the pegged exchange rate A) there is a shortage of euros equal to 200 million. B) there is a surplus of euros equal to 700 million. Othere is a shortage of euros equal to 500 million. D) there is a surplus of euros equal to 300 million.8) Suppose that the government has imposed the tax on the foreign investorsper currency they pay for financial assets issued by the country. Discuss itsimplications on the current foreign exchange rate?
- In answering the question, you should emphasize the line of reasoning that generated your results; it is not enough to list the results of your analysis. Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. Assume that yesterday the exchange rate between the euro and the Singaporean dollar was 1 euro = 0.58 Singaporean dollars. Assume that today the euro is trading at 1 euro = 0.60 Singaporean dollars. %3D a. How will the change in the exchange rate affect each of the following in Singapore in the short run? i. Aggregate demand. Explain. ii. The level of employment. Explain. b. Suppose that Singapore wants to return the exchange rate to 1 euro = 0.58 Singaporean dollars. i. Should the Singaporean central bank buy or sell euros in the foreign exchange market? ii. Instead of buying or selling euros, what domestic open-market operation can the…View the data below for the exchange rate between the US dollar and the Japanese yen. How many yen could you get per dollar at the earliest date shown on the chart? Explain. How many yen could you get per dollar at the most recent date shown on the chart? Explain. Has the dollar appreciated or depreciated in value over time? Explain.4. Net capital outflow and net exports An open economy interacts with the rest of the world through its involvement in world markets for goods and services and world financial markets. Although it can often result in an imbalance in these markets, the following identity must remain true: Net Capital Outflow = Net Exports In other words, if a transaction directly affects the left side of this equation, then :must also affect the right side. The following problem will help you understand why this identity must hold. Suppose you are a fashion designer living in the United States, and a trendy boutique in Bangkok just purchased your entire inventory for THB 90,000. Determine the effects of this transaction on exports, imports, and net exports in the U.S. economy, and enter your results in the following table. If the direction of change is "No change," enter "0" in the Magnitude of Change column. Hint: The magnitude of change should always be positive, regardless of the direction of change.…
- Question 2 Calculate the Nominal and Real Exchange Rate Indices for the euro in periods 1 to 5. Period 1 2345 Nominal € Index $/€ rate $1.20/31 ? $1.40/£1 ? $1.25/£1 ? $1.50/£1 ? $1.15/31 ? US Price Index 100 105 110 130 135 Eurozone Price Index 100 110 120 130 155 Real € Index ? ? ? ? ? compare the UK's overall price competitiveness is period 5 as compared to period 1.5) Indicate whether each of the following creates a demand for or a supply of European euros in foreign exchange markets: a. Liberty purchases an Airbus plane assembled in France b. Mercedes-Benz decides to build an assembly plant in Knoxville c. A Liberty student decides to spend a year studying at the Sorbonne in Paris d. An Italian manufacturer ships machinery from Rome to Venice on an Egyptian freighter e. It is widely expected that the euro will depreciate in the near future2. Determining long-term exchange rates Consider two countries, the United States and Japan, that trade with each other. Suppose that the productivity growth in the United States accelerates, but it remains the same in Japan. The following graph shows the supply and demand for the Japanese yen in the United States before the change in productivity. The vertical axis is the exchange rate of the yen in terms of the dollar, and the horizontal axis is the quantity of yen Show how the change in productivity affects the equilibrium exchange rate by shifting one or both of the curves on the graph Note: Select and drag one or both of the curves to the desired position. Curves will snap Into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther EXCHANGE RATE (Dollars per yeni Demand QUANTITY (Millions of yen) As a result of the change in productivity, the U.S. doilar appreciates depreciates Demand 161 Supply
- 1. Use equations to support your answer to this question. Do not forget to explain your reasoning and to show how you came up with the equations you use. No credit without an explanation. For simplicity, ignore net international payments to employees and net unilateral transfers by assuming that they are always equal to zero. When the world interest rate is negative such that -1<r*<0: A) A two-period economy cannot run perpetual trade deficits even if its initial net foreign asset position is negative.B) A two-period economy can run perpetual trade deficits even if its initial net foreign asset position is negative.C) A two-period economy can run perpetual trade surpluses if its initial net foreign asset position is positive.D) A two-period economy cannot run perpetual trade surpluses if its initial net foreign asset position is negative.E) None of the above10) Assume the overall US market price for retail chocolate is $7.00 per pound, and in order to attract "Chocoholic Tourists" from Europe, the Hershey company decides to lower its price to $6.00 per pound. Based on the Purchasing Power Parity theory of exchange rates, what will eventually happen the effective price of chocolate for European buyers, assuming the Euro-USD exchange rate starts at 1€ Per $1.00? Using the chart below, determine the exchange rate at which Hershey's effective chocolate prices will match those of the rest of the chocolate market? # of Lbs Chocolate Exchange Exchange Chocolate 200 Effective budget in Rate Euros Rate budget in Price Euro Euro/$ $/Euro $'s Euros will buy 200.00 € 1.00 1.00 $200 33.33 6.00 € 200.00 € 1.05 0.95 $190 31.75 6.30 € 200.00 € 1.10 0.91 $182 30.30 6.60 € 200.00 € 1.15 0.87 $174 28.99 6.90 € 200.00 € 1.20 0.83 $167 27.78 7.20 € 200.00 € 1.25 0.80 $160 26.67 7.50 € 200.00 € 1.30 0.77 $154 25.64 7.80 € 200.00 € 1.35 0.74 $148 24.69 8.10 €3 / 3 100% 每 8. The price of a laptop in the United States is $1,000. The price of a car in taly is 10,000 euros The current exchange rate rs09 curos per dollr. Ifa laptop is exported from the United Startes to Italy with no barriers to trade, what will be the price of the aptop in Italy? Ira car is imported to the United States from luh with barriers to trade, what will be the price of the crin ahe Ented Statres? Suppose the dollar appreciates by 0pereent aganscihecomo. Whr will be the price ofa computer exporied from the United States changem ltaly? -Suppose thhe dollarapprecites br 10 percentagamst the curoWt willbethe price of a car inmported to the Enred States from Ital chnge m tdhe Eaed Statese (8 marks) (2marks) 2marks) (2marks] (2marks)